There is a sense of disappointment with the financial reform bill, or at least a sense of missed opportunity. Joshua Green accurately describes the financial reform effort as “modest given the scope and severity of the crisis”, designed by people who, in John Heilemann’s memorable phrasing, “are all technocrats who believe the system doesn’t need to be rebooted or downsized, merely better supervised.”

What brought us here? Financial reform should be the bread-and-butter of a progressive movement — it is one of the strongest legacies of the New Deal. Worries about concentration of power, efforts at promoting shared prosperity, having the government play a role in enforcing transparency and having the financial sector work as a means to build the real economy (rather than an end in itself), are all liberal values. Insomuch as Obama represents the beginning of a new, potentially more liberal generation, it is a necessary priority to show core competency on what the government can accomplish in taking the worst edges off a collapse-prone financial sector while still preserving the innovation of markets. But now people are starting to wake up to a bill in 2010 that strikes them as far from a fundamental reform of the financial system.

There is also a sense of worry that 10% unemployment is an acceptable condition in the new normal state. Even with the market showing signs of worrying about deflation more than inflation, fiscal austerity seems to be the vocal point of the day, rather than an increased stimulus.

In order to know this story you have to go back to 2008 and 2009 and see where the path was laid out, and Robert Kuttner’s A Presidency in Peril is that story. Kuttner goes back to the initial selection of Obama’s economic team, revealing how the ability to carve out a new direction for Wall Street was sidelined in favor of administration officials who were too close to the old system. He walks through the Bush bailouts, and shows the continuity with both the major players, officials and tools into the new administration. The key decisions made in early 2009, going with PPIP and the stress test as a way of signaling to the market that the current biggest banks would stay the way they are, are described in detail. Kuttner’s narrative stands as the best source of how these calls brought us to where we are now.

We are now approaching a recovery in the shadows of these bad calls. A stimulus package half of what it needed to be leaves us with record high unemployment and a poor measure of what can be done about it. A dangerous financial sector that was preserved throughout 2009 leaves us with a financial reform bill that places its hope on better supervision instead of fundamental reform. A nation underwater in their mortgages and unable to negotiate their home loans are stuck there in part because of the optimism of the numbers returned from the stress test.

Before we throw in the towel and accept that more fundamental changes aren’t possible, it’s worth remembering a past presidency imperiled by a financial meltdown. FDIC insurance, the social insurance that protects you from bank runs wiping out your checking account, was originally opposed by President Roosevelt and his advisors. FDR was worried about taking it on since the banking establishment hated the idea of it. But challenges from the left convinced FDR of the value of these reforms, and strategic pressure created a more just system that works to protect the financial system from itself. Kuttner holds out hope that our economic future can be recovered, and lays out a compelling plan for what can still be done. But is it already to late?